Block sinks 10% after weak third quarter results miss Wall Street estimates

Block (SQ) shares declined 10% after reporting third-quarter adjusted earnings per share of 54 cents and revenue of $6.11 billion, both falling short of Wall Street expectations. While the Square service experienced a slowdown in gross profit growth to 9% year-over-year, the Cash App segment demonstrated robust performance with a 24% increase in gross profit to $1.62 billion, driven by its credit products. Despite the mixed segment results, Block's overall gross profit of $2.66 billion surpassed estimates, and the company raised its full-year 2025 gross profit guidance to $10.2 billion, signaling underlying strength in its Cash App ecosystem despite the immediate market reaction to the headline misses.

Analysis

Block's Q3 results saw adjusted EPS of $0.54 and revenue of $6.11 billion, both falling short of analyst expectations of $0.67 and $6.31 billion, respectively, triggering a 10% share price decline. The Square segment's gross profit growth decelerated to 9% year-over-year, down from 11% last quarter, attributed to processing partner changes and lower-margin hardware sales.

Conversely, the Cash App segment demonstrated robust performance, with gross profit surging 24% year-over-year to $1.62 billion, driven by credit products like Cash App Borrow and Buy Now Pay Later. This strength contributed to an overall gross profit of $2.66 billion, exceeding FactSet's $2.60 billion estimate and marking an 18% increase from the prior year.

The company raised its full-year 2025 gross profit guidance to $10.2 billion, indicating management's confidence in future growth, particularly from the Cash App ecosystem. Net income also significantly improved to $461.54 million ($0.74 per share) from $283.75 million ($0.45 per share) a year ago, underscoring enhanced profitability despite the revenue miss.

Key Decisions for Investors

• Investors should closely monitor the trajectory of Cash App's credit expansion and its ability to drive increased customer inflows and direct deposit accounts, as highlighted by Morgan Stanley.
• Evaluate the sustainability of the Square segment's gross profit deceleration and management's effectiveness in mitigating challenges from processing partner changes and lower-margin hardware sales.
• Consider the implications of Block's raised 2025 gross profit guidance and significant net income improvement, which suggest underlying operational strength despite the Q3 revenue and EPS misses.